There is no "Maturity Wall" 101.
Though this is a myth you may not be relieved by this thread.

Have you seen the doomer charts about the maturity wall of US Debt. It is a clear signal that you should unfollow those who post it. It usually starts with 9TN of debt comes due. Notice the huge wall of debt maturities in the last chart. Sometimes the FURU posting the chart will do it monthly. Particularly when trying to suggest the Fed should cut rates to save the FURU's precious bags. Close to 6TN coming due in the next 3 months. OMIGOD PANIC!

U.S. downgrade 101 comments

Firstly it is not a time to make extreme statements. Breathe people.

What happened?
Moody's lowered its credit rating of the U.S. joining S&P who moved in July of 2011 and Fitch in August of 2023 at a AA rating instead of the highest grade AAA 🧵 Here's how I'm thinking about it.

1. Is there any technical consequences for holders of the debt
2. What happened in markets when S&P and Fitch downgraded and what was happening with fiscal policy?
3. Will the downgrade and possible market moves impact the fiscal policy makers

Fed reinvestment 101. It's in no way QE It's balance sheet size neutral and reserves neutral.

Ever since the Fed has held US Treasuries they have had some of those US Treaasuries mature. In periods when neither QE or QT is active the proceeds from maturities are reinvested in treasuries. They are purchased for many years now via a process called an Add-on to a treasury auction.

The treasury auction today sold 42BN ten years to the private sector. The yield was set completely independently from the

A thought.

One of the classic arguments against market timing trading vs buy and hold is taxes. I totally get that but also it further exposes the basic problem most investors seem to have. That constantly merge long term long only passive beta with alpha I am entirely consistent that almost everyone has no ability to beat the market and shouldn't even try. That means that everyone should own a well constructed low cost diversified long only portfolio of assets and add to that through time as they save and go about their lives.

A tale of two models 101

On Thursday one of these two Fed Nowcast models is going to be wrong. Of course the Wall Street Sheep Consensus straddles both. Why are these models so different?
The NYFRM (and St. Louis fed fwiw) have a 2.5% Q1 GDP Nowcast and Atlanta has a -40bp Nowcast

We won't go through all the math but DSData and @DanielSimonyi and I have been working through the problem and these are our rough findings. The difference is based on the models.

Terming out the debt 101.

Lots of folks think that choosing to NOT term out the debt is a bet by the treasury on interest rates. In other words keep financing in bills until long term interest rates decline and THEN issue longer term.

I totally get that idea but want to look at the numbers a bit.

The first thing one has to ask is what is the end game of the Treasury debt composition if the current composition is undesired and is being held for market timing reasons

The second thing one has to consider is whether the "waiting" has a cost as if

Hypothetically Trump fires Powell scenario

Completely off the cuff here I have to say I see two things as possible.

Trump wants to lower interest rates to achieve his political goals

Trump has such a massive ego that he believes he could do a better job than the Fed in Achieving the Fed's dual mandate and firing Powell and replacing him with a puppet would allow Trump to manage policy better for America and its future.

I think the latter case is a legitimate possibility. He may really think this. Maybe he can manage monetary policy better

Post QT end - reserves evolutions thoughts 101. The idea the Fed has for the future of bank reserves in an "ample" regime is reserves are correlated to GDP. The basic idea I guess is because reserves are the medium of exchange between private sector banks when customers of different banks transact with each other(for private sector investment and consumption activity)or the federal reserve (for tax payments, repo, and debt market transactions including primary issuance), Each of these transactions represent a movement of reserves between banks

Pipe Dream 101 - Mar A Lago Accord version

The Xverse is awash with nonsense regarding a grand bargain called the Mar A Lago Accord. While I accept that anything is possible with the right set of sticks and carrots I cannot imagine such a deal occuring. Nonetheless I will analyze it here in this thread.

What problem is the MALA solving? The basic idea is that the Trump Administration wants to rebalance global trade to favor domestic production. This is a totally reasonable goal. Let's describe the tactics to achieve that goal outlined in MALA

Marking Treasury's Gold to Market 101 inspired by @DannyDayan5

So as many know the U.S. Treasury owns 8000 Metric tons of gold and for balance sheet purposes it is marked at $42.

If the Treasury decided to "sell its gold" to the Fed at market Or better lend its gold to the Fed for cash in the TGA it could conceptually do that. The Fed would credit the Treasury General account with roughly 700BN in fresh cash. While the Treasury couldn't "spend" that cash because fiscal spending is a legislative function

This is an interesting report. I have some comments as having lived through the 95-99 period in a position of very high responsibility and global access at Salomon Brothers which was a massive participant.

I see 95 as consistent with 2021 and LTCM as consistent with LDI/SVB 🧵 Just one brief observation. The AGW (Always good weather) portfolio of 80% equities and 40% long vol does not fit my framework. Its is massively overweighted pro growth and easy financial conditions. But more importantly it doesn't receive risk premium

Fed Policy 101

The job of the Fed is not easy. The tools they have are crude. Predicting the future is hard. The economy is complex and the tools used may have varying impact. Markets themselves often undo policy lever influences or accelerate policy moves in an undesired way Fiscal policy can be highly influential either accentuating or directly counteracting monetary policy stance. Perhaps less relevant for the Fed than other CB's ROW fiscal and monetary policies and needs and desires of global markets can enhance or counteract Fed objectives

An equity security of a corporation values the market value of assets - the market value of liabilities 101

At every moment this equation holds true. So what to do about it.

Mostly one should ignore as market participants are pretty good in aggregate of making this estimate However when you look at a particular company transparency matters. Financial accounting doesn't tell us the MV of assets or liabilities for almost all corporations. It tells us the Book Value of the assets, liabilities and equity

Does cash want assets or do assets want cash 101 - Part 2

At the end of part 1 we dropped this cliffhanger that fear/greed "value" investing and long or short margin calls don't need cash on the sidelines to act. That is because when banks are healthy they can create money out Of thin air to allow risk takers to take risk.

So part 2 really doesn't need to even deal with the size or rate of interest of cash on the
Sidelines. These next 3 drivers don't depend on it. However they do depend on bank health. But let's not jump the gun to that point yet

Does cash want assets or do assets want cash 101

A few days ago I wrote this thread on "Cash on the Sidelines" it debunked the idea that cash can be transformed into asset purchases. The bigger question will be the topic of this thread

https://twitter.com/dampedspring/status/1857433676058853545

Remember cash grows based on three primary factors
1. Banks create money out of thin air
2. Federal reserve buys assets (QE) and government spends
3. Federal reserve pays interest on reserves and RRP Balances.

Credit spreads are not tightening as much as you may think - 101

One way of measuring value in corporate bonds is to compare their yield to a treasury bond of similar maturity. When doing this credit spreads have fallen all year and are at historic tights. BUT this is deceptive To arbitrage a corporate bond which one presumably would want to short because of TOO tight spreads which provide too little compensation for default one has to hedge the duration of the corporate bond.

Cash on the sidelines 101

Today news articles are reporting that Money Market Mutual Fund assets have grown to over 7TN

That is a fact.

The problem is those who interpret this "cash on the sidelines" as a bullish (or bearish but that's never said) signal because it represents future demand for stocks, bonds, gold or crypto.

In this thread I will try to explain why cash has grown and how it could continue to grow or shrink

BUT also how it mechanically cannot go down because those in cash want to own assets

Lastly how investor preferences

Currency markets 101
I find this to be the most difficult market to understand and don't have all of the answers on what causes currencies to move. So treat this as a work in progress

Two private sector actors exchange currency for two primary reasons A person may need a certain currency to pay a provider of a good or service, or to pay an owner of a financial asset denominated in a particular currency the going price.

The other side of the currency transaction may have a similar transaction to do as well and when that

End the Fed 101

This slogan is one of the shinier objects in the post election pre inauguration period we are in today. While such a monumental shift as completely eliminating the Fed and replacing it with nothing is unlikely to happen it's
worth examining the consequences. Firstly having a central bank is absolutely a choice. A government makes this choice and can choose to eliminate it as well.

While the effectiveness of the Fed in using its various tools is worth of separate debate that's not what this thread is about. Also while the

Making a valuable call in markets 101

Let's start with my long term basic point that should be where you stop reading this thread and go about building your wealth through your profession.

Owning a long only diversified portfolio of assets (what I call beta) is free money And should be your ONLY investment strategy to build your savings

That is MY CALL. It will always be my call and anything I write on Twitter or at DampedSpring or 2GrayBeards is an order of magnitude LESS important that this CALL

Why? Because any deviation from this plan

Decomposing a change in nominal yields 101

Today at the FOMC press conference Jay Powell mentioned decomposition. The goal of decomposition is to attribute the changes in nominal yields to isolate economic drivers. As he said there are lots of models. This 🧵is not meant to provide a model but to provide the concepts that need to be balanced when doing such modeling. The questions that people are trying to answer start with a few basics.

What does the change in yield mean to changes in growth expectations and to changes in inflation expectations